Typically a balance transfer involves shifting the debt on one credit card to another, because the new card offers a 0 percent or low introductory interest rate on balance transfers. You’re getting a chance to pay down the debt at a lower rate than you had with the old card.

The question is does the balance transfer itself affect or impact your credit score?

  • Hard inquiry. A new card means a hard inquiry into your credit, which could lower your score, at least for a short time.
  • Credit limit. If you’re increasing your credit limit in the course of the balance transfer, and using your credit card less, this could bring down your credit utilization rate. Bringing down that rate could increase your score.
  • Age of your credit accounts. Because a balance transfer means a new account, you’re decreasing the average age of your credit history. This new card doesn’t have a payment history yet. This could bring down your score slightly.
  • Payments on the new card. If you take advantage of this balance transfer offer and begin diligently paying down your debt, you may be able to save money and possibly improve your credit score at the same time. Making on-time payments going forward could lead to a rising score.

To better understand what impact a balance transfer might have, learn more about the factors that make up a credit score.

How Your Credit Score is Calculated

A credit score provides a lender a quick way to gauge your creditworthiness by measuring the likelihood you will pay your loans back and on time. Your credit score is typically based on five main factors, each contributing a different percentage to the score: new credit.

Payment History

This factor refers to a borrower making on-time payments to debts. Missing payments can negatively affect a credit score. Payment history has the largest impact, usually about 35 percent of the score. If you do a balance transfer, it will be important to make on-time payments and begin steadily paying down any debt you might have.

Amount Owed

Credit usage is approximately 30 percent of a credit score. A credit utilization rate, also known as your balance-to-limit ratio compares your total balances to your total credit limits. Generally, the higher your credit utilization, the lower your credit score will be. Opening a new card for a balance transfer, could lower your credit utilization, depending on the limit and your spending habits.

Length of Credit History

Your credit history typically accounts for 15 percent of a credit score. Generally, a longer credit history will increase a score, all else being equal.  Your credit history is calculated by taking the average the length of your credit accounts and the age of your oldest account. Balance transfers between existing credit accounts typically won’t impact a score in terms of your credit history. However, when you open a new credit card the average age of credit will decrease.

New Credit

New credit inquires generally make up 10 percent of a credit score. Each time you apply for a new credit card, a “hard inquiry” is placed on your credit report. Inquires normally have a relatively small negative impact on credit scores, depending on the other information in your credit report. A balance transfer on a new card will include a hard inquiry. Too many applications for credit cards can negatively affect a credit score and can indicate a higher credit risk to lenders.

It’s important to remember that any change in your usage of credit or credit payment activity may affect your score. Credit scores move up and down which is reflective of the information within your credit file at any one point in time. Checking your credit score is a good way to keep up with changes within your credit report and monitor the impact of positive or negative events.

When considering a balance transfer it’s important to stay informed and read the fine print carefully. Understand all the costs involved and think about the cost of the balance transfer versus the long-term cost of carrying high interest debt.

Originally published February 10, 2015. 

Updated May 24, 2019. 

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